Sensus Healthcare(SRTS) - 2021 Q2 - Quarterly Report

Introductory Note Caution Concerning Forward-Looking Statements This section identifies forward-looking statements, outlines inherent risks like COVID-19 and intellectual property, and disclaims update obligations - Forward-looking statements are identified by terms like "believes," "estimates," "anticipates," "expects," "plans," "intends," "may," "could," "might," "will," "should," "potential"[9] - Key risks include COVID-19 severity, profitability, intellectual property protection, reimbursement, regulatory compliance, manufacturing, international operations, customer concentration, and IT performance[10] - The company undertakes no obligation to update forward-looking statements except as legally required[11] PART I – Financial Information Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets Total assets decreased from $28.01 million to $26.36 million, primarily due to reduced current assets, property, and intangibles | Metric | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Assets | | | | | Cash and cash equivalents | $15,204 | $14,907 | $297 | | Accounts receivable, net | $4,579 | $3,776 | $803 | | Inventories | $3,132 | $4,427 | $(1,295) | | Total current assets | $24,391 | $25,171 | $(780) | | Property and equipment, net | $785 | $1,356 | $(571) | | Intangibles, net | $194 | $338 | $(144) | | Total assets | $26,362 | $28,010 | $(1,648) | | Liabilities | | | | | Total current liabilities | $5,154 | $4,856 | $298 | | Total liabilities | $6,147 | $6,514 | $(367) | | Stockholders' Equity | | | | | Total stockholders' equity | $20,215 | $21,496 | $(1,281) | Condensed Consolidated Statements of Operations Revenue significantly grew for both three and six-month periods, substantially reducing net loss and improving gross profit percentage | Metric (in thousands) | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | YoY Change (%) | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | YoY Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Revenues | $5,422 | $1,183 | 358.3% | $8,492 | $2,862 | 196.7% | | Cost of sales | $2,077 | $543 | 282.5% | $3,561 | $1,514 | 135.2% | | Gross profit | $3,345 | $640 | 422.7% | $4,931 | $1,348 | 265.8% | | Loss from operations | $(279) | $(2,574) | -89.2% | $(1,394) | $(6,211) | -77.6% | | Net loss | $(279) | $(2,574) | -89.2% | $(1,394) | $(6,161) | -77.4% | | Net loss per share – basic and diluted | $(0.02) | $(0.16) | -87.5% | $(0.08) | $(0.38) | -78.9% | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $21.496 million to $20.215 million, driven by net losses despite stock-based compensation | Metric (in thousands) | December 31, 2020 | June 30, 2021 | Change | | :-------------------- | :---------------- | :------------ | :----- | | Common Stock | $166 | $166 | $0 | | Additional Paid-In Capital | $43,701 | $43,820 | $119 | | Treasury Stock | $(310) | $(316) | $(6) | | Accumulated Deficit | $(22,061) | $(23,455) | $(1,394) | | Total Stockholders' Equity | $21,496 | $20,215 | $(1,281) | - Stock-based compensation contributed $119 thousand to additional paid-in capital for the six months ended June 30, 2021[16] - Net loss for H1 2021 was $1,394 thousand, increasing the accumulated deficit[16] Condensed Consolidated Statements of Cash Flows Operating cash flow significantly decreased, investing activities provided less, and financing used cash, leading to a smaller net cash increase | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | | Net cash provided by operating activities | $241 | $2,567 | $(2,326) | | Net cash provided by (used in) investing activities | $170 | $6,781 | $(6,611) | | Net cash provided by (used in) financing activities | $(114) | $967 | $(1,081) | | Net increase (decrease) in cash and cash equivalents | $297 | $10,315 | $(10,018) | | Cash and cash equivalents – end of period | $15,204 | $18,415 | $(3,211) | - Operating cash flow for H1 2021 was $0.241 million, a significant decrease from $2.567 million in H1 2020, driven by net loss and operating asset changes[17] - Investing cash flow for H1 2021 was $0.170 million from asset sales, a sharp contrast to H1 2020's $6.781 million from matured investments[17] Notes to the Condensed Consolidated Financial Statements These notes detail the company's organization, accounting policies, and financial items, clarifying presentation basis, estimates, and unaudited interim data Note 1 — Organization and Summary of Significant Accounting Policies - Sensus Healthcare, Inc. manufactures and sells radiation therapy devices globally, operating as one segment from Boca Raton, Florida[19] - Revenue is recognized upon transfer of control of goods or services, with service contract revenue recognized straight-line over the contract period[24][25] | Revenue Type (in thousands) | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Product Revenue | $4,250 | $70 | $5,924 | $1,146 | | Service Revenue | $1,172 | $1,113 | $2,568 | $1,716 | | Total Revenue | $5,422 | $1,183 | $8,492 | $2,862 | - U.S. customers generated 89% and 91% of revenue for the three and six months ended June 30, 2021, respectively, with one customer accounting for 44% and 30%[30] - Deferred service revenue totaled $1.77 million as of June 30, 2021, with $0.932 million expected in H2 2021[28] Note 2 — ACQUISITIONS - In August 2020, Sensus acquired two mobile aesthetic laser companies (SLAS) for $999 thousand, initially treated as compensation for post-acquisition services[41][42] - The aggregate purchase price was reduced to $229 thousand due to the termination of a compensation arrangement[42] - In April 2021, the company sold acquired property for $257 thousand, recording $88 thousand in intangible asset impairment and $46 thousand loss on sale[43] Note 3 — Property and Equipment | Category (in thousands) | June 30, 2021 | December 31, 2020 | | :---------------------- | :------------ | :---------------- | | Operations equipment | $1,751 | $2,178 | | Tradeshow and demo equipment | $924 | $923 | | Computer equipment | $122 | $119 | | Total | $2,797 | $3,220 | | Less accumulated depreciation | $(2,012) | $(1,864) | | Property and Equipment, Net | $785 | $1,356 | - Net property and equipment decreased by $571 thousand from December 31, 2020, to June 30, 2021[46] - Depreciation expense was approximately $112 thousand for Q2 2021 and $289 thousand for H1 2021[46] Note 4 — INTANGIBLES | Category (in thousands) | December 31, 2020 | Impairment Charges | Amortization Expense | June 30, 2021 | | :---------------------- | :---------------- | :----------------- | :------------------- | :------------ | | Patent Rights | $241 | $0 | $(48) | $193 | | Customer Relationships | $84 | $(81) | $(2) | $1 | | Trade Names | $13 | $(7) | $(6) | $0 | | Total | $338 | $(88) | $(56) | $194 | - Total intangible assets decreased from $338 thousand to $194 thousand, primarily due to $88 thousand in impairment charges and $56 thousand in amortization expense[48] Note 5 — Debt - The company has a $10 million revolving credit facility with no outstanding borrowings as of June 30, 2021, or December 31, 2020[49] - Small Business Administration loan balances under the Paycheck Protection Program are reflected in Loan Payable[50] Note 6 — Product Warranties | Product Warranty Liability (in thousands) | Amount | | :-------------------------------------- | :----- | | Balance, December 31, 2020 | $187 | | Warranties accrued during the period | $97 | | Payments on warranty claims | $(58) | | Balance, June 30, 2021 | $226 | - The product warranty liability increased from $187 thousand to $226 thousand, reflecting $97 thousand in accruals and $58 thousand in payments[51] Note 7 — Leases - The company leases its headquarters until September 2022 and its subsidiary's manufacturing facility lease, expiring July 2029, is slated for termination[52][53] | Maturity of Operating Lease Liabilities (in thousands) | Amount | | :--------------------------------------------------- | :----- | | 2021 (July 1 – December 31, 2021) | $176 | | 2022 | $285 | | 2023 | $104 | | 2024 | $105 | | 2025 | $108 | | Thereafter | $387 | | Total undiscounted operating leases payments | $1,165 | | Present Value of Operating Lease Liabilities | $966 | - The weighted-average remaining lease term is 6.0 years, with a weighted-average discount rate of 5.0%[54][56] Note 8 — Commitments and Contingencies - The company's SRT-100 contract manufacturing purchases totaled $398 thousand for H1 2021, down from $1.8 million in the prior year[55][56] - The Department of Justice is investigating a physician's Medicare billing for SRT-100 treatments and may expand to Sensus, which disputes wrongdoing and asserts strong defenses[58] Note 9 — STOCK-BASED COMPENSATION - All 138,000 outstanding warrants expired during H1 2021 with $0 intrinsic value[59] - Unrecognized stock compensation expense was approximately $211 thousand as of June 30, 2021, to be recognized over 1.25 years[62] | Restricted Stock Activity | Number of Shares | Weighted Average Grant Date Fair Value | | :------------------------ | :--------------- | :------------------------------------- | | Outstanding at Dec 31, 2020 | 37,500 | $4.17 | | Vested | (8,750) | $4.11 | | Outstanding at June 30, 2021 | 28,750 | $4.19 | - 229,334 stock options were outstanding and exercisable at June 30, 2021, with a weighted average exercise price of $5.55 and a 6.57-year remaining contractual term[62] Note 10 — Income Taxes - The company reported negative book income before taxes for H1 2021, resulting in $0 tax expense for both 2021 and 2020 periods[63] - No uncertain tax positions require recognition, and U.S. federal and certain state tax returns are subject to examination from 2015 onwards[64][66] Note 11 — Subsequent Events - The company evaluated subsequent events up to the financial statement issuance date and found no events requiring adjustments or disclosures[67] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Sensus Healthcare specializes in non-invasive, cost-effective SRT technology for skin conditions, expanding into cancer treatment with Sculptura™ - Sensus Healthcare provides non-invasive, cost-effective treatments for oncological and non-oncological skin conditions using proprietary SRT technology[69] - The product portfolio includes SRT-100, SRT-100+, and SRT-100 Vision devices, with SRT technology treating hundreds of thousands of patients globally[69] - Sensus introduced Sculptura™, expanding into cancer treatment beyond skin conditions[69] Impact of COVID-19 COVID-19 significantly impacted sales in 2020 and early 2021 due to social distancing and practice closures, with future impacts uncertain - The COVID-19 pandemic adversely impacted the company's sales throughout 2020 and into 2021[70] - Social distancing and temporary physician practice closures were primary drivers of the sales impact[70] - The company cannot reasonably estimate the full future impact of the pandemic on its business, operations, and financial condition[70] Segment Information The company manages its global business as a single reportable segment, consistent with management's operational review - Sensus Healthcare operates and manages its business globally within one reportable segment[71] Results of Operations Revenue and gross profit grew significantly due to higher sales and service revenue, and COVID-19 recovery, with R&D decreasing as Sculptura™ moved to production Three months ended June 30, 2021 vs. 2020 | Metric (in thousands) | Q2 2021 | Q2 2020 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Revenues | $5,422 | $1,183 | $4,239 | 358% | | Cost of sales | $2,077 | $543 | $1,534 | 283% | | Gross profit | $3,345 | $640 | $2,705 | 423% | | Gross profit percentage | 61.7% | 54.1% | 7.6 pp | | | Selling and marketing | $1,254 | $1,162 | $92 | 8% | | General and administrative | $1,445 | $904 | $541 | 60% | | Research and development | $925 | $1,148 | $(223) | -19% | | Loss from operations | $(279) | $(2,574) | $2,295 | -89% | - Revenue increase was primarily due to higher unit sales, service revenue, and recovery from COVID-19 impact in Q2 2020[73] - R&D expense decreased as the Sculptura project entered its production phase[78] Six months ended June 30, 2021 vs. 2020 | Metric (in thousands) | H1 2021 | H1 2020 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Revenues | $8,492 | $2,862 | $5,630 | 197% | | Cost of sales | $3,561 | $1,514 | $2,047 | 135% | | Gross profit | $4,931 | $1,348 | $3,583 | 266% | | Gross profit percentage | 58.1% | 47.1% | 11.0 pp | | | Selling and marketing | $2,322 | $2,953 | $(631) | -21% | | Research and development | $1,586 | $2,373 | $(787) | -33% | | Loss from operations | $(1,394) | $(6,211) | $4,817 | -78% | - Revenue increase was primarily due to higher unit sales, service revenue, and recovery from COVID-19 impact in H1 2020[79] - Selling and marketing expense decreased due to fewer tradeshows, reduced marketing activities, and lower headcount[82] - R&D expense decreased as the Sculptura project entered its production phase[83] Financial Condition Cash and accounts receivable increased, while inventories and prepaid assets decreased, with no outstanding borrowings on the revolving credit line - Cash and cash equivalents increased by $297 thousand at June 30, 2021[85] - Accounts receivable increased by $803 thousand, primarily due to increased unit sales[85] - Inventories decreased by $1.3 million due to increased shipments of units sold[86] - Prepaid and other current assets decreased by $585 thousand primarily due to the amortization of prepaid expenses[87] - No borrowings were outstanding under the revolving line of credit at June 30, 2021, or December 31, 2020[88] Liquidity and Capital Resources Liquidity and capital needs are driven by revenue, margins, expenses, and working capital, with short-term capital focused on sales, marketing, and R&D expansion, and management may seek additional funds - Liquidity and capital requirements are impacted by revenue generation, gross margins, operating expenses, and working capital fluctuations[89] - Primary short-term capital needs include expenditures for expanding sales, marketing, and research and development activities[90][97] - Management regularly evaluates cash requirements and may seek additional funds for operations, commitments, capital, and business development[90] Cash flows Operating cash flow significantly decreased, investing activities provided less, and financing used cash, leading to a smaller net cash increase | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $241 | $2,567 | | Net cash provided by (used in) investing activities | $170 | $6,781 | | Net cash provided by (used in) financing activities | $(114) | $967 | | Total net increase (decrease) in cash and cash equivalents | $297 | $10,315 | - Operating cash flow for H1 2021 was $0.2 million, down from $2.6 million in H1 2020, driven by net loss and changes in operating assets[91] - Investing cash flow for H1 2021 was $0.17 million from asset sales, a significant decrease from H1 2020's $6.5 million from matured investments[92] - Financing activities used $0.114 million in H1 2021 for loan repayments and taxes, contrasting with $1.0 million provided in H1 2020 from a PPP loan[93] Indebtedness Debt information, including the revolving credit facility and SBA loan, is detailed in Note 4 to the financial statements - Refer to Note 4, Debt, for detailed information on the company's indebtedness[94] Contractual Obligations and Commitments Information on contractual obligations and commitments is provided in Note 7 to the financial statements - Refer to Note 7, Commitments and Contingencies, for detailed information on contractual obligations and commitments[95] Off-Balance Sheet Arrangements The company had no off-balance sheet arrangements during the reporting periods and currently has none - The company had no off-balance sheet arrangements during the reporting periods and currently has none[96] Critical Accounting Policies and Estimates Financial statement preparation requires significant management estimates and assumptions, with details in Note 1 and the 2020 Annual Report - Financial statement preparation involves management estimates and assumptions that impact reported financial figures[97] - For a summary of accounting policies and estimates, refer to Note 1, Organization and Summary of Significant Accounting Policies, and the 2020 Annual Report[97] JOBS Act Sensus, an "emerging growth company" under the JOBS Act, has reporting exemptions until December 31, 2021, and opted out of the extended transition period for new accounting standards - Sensus is an "emerging growth company" benefiting from exemptions like reduced audited financial statements, auditor attestation, and executive compensation disclosures[98] - The company is expected to remain an emerging growth company until December 31, 2021, then transition to a "smaller reporting company"[98] - Sensus irrevocably opted out of the extended transition period for new accounting standards, adopting them on the same schedule as non-emerging growth companies[99] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable, indicating no significant quantitative or qualitative market risk disclosures are required for this period - This item is marked as "Not applicable," indicating no significant market risk disclosures[100] Item 4. Controls and Procedures Evaluation of Disclosure Control and Procedures As of June 30, 2021, management, including the CEO and CFO, concluded that disclosure controls and procedures were effective - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2021[101] Changes in Internal Control over Financial Reporting No significant changes in internal control over financial reporting occurred during the most recent fiscal quarter, nor are any likely to materially affect it - No significant changes in internal control over financial reporting occurred during the most recent fiscal quarter[102] PART II – Other Information Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, assessing litigation liabilities, with details in Note 8, Commitments and Contingencies - The company is party to certain legal proceedings in the ordinary course of business[103] - Refer to Note 8, Commitments and Contingencies, for additional information[103] Item 1A. Risk Factors Readers should consider risk factors from the 2020 Annual Report and quarterly reports, as unknown or immaterial risks could also adversely affect the business - Readers should carefully consider the risk factors discussed in the 2020 Annual Report and subsequent quarterly reports[104] - Additional unknown or immaterial risks and uncertainties may materially adversely affect the business, financial condition, or operating results[104] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of securities during Q2 2021, and no use of proceeds from registered sales or equity purchases by the registrant or affiliates - There were no unregistered sales of securities during the three months ended June 30, 2021[105] - There was no use of proceeds from the sale of registered securities[106] - There were no purchases of equity securities by the registrant and affiliated purchasers[107] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[108] Item 4. Mine Safety Disclosure This item is not applicable to the company - This item is marked as "Not applicable"[109] Item 5. Other Information The company reported no other information for this item - No other information was reported for this item[110] Item 6. Exhibits This section lists Form 10-Q exhibits, including CEO and CFO certifications and XBRL-related documents - Exhibits include certifications from the CEO (Joseph C. Sardano) and CFO (Javier Rampolla) pursuant to Rules 13a-14(a) and 18 U.S.C. Section 1350[112] - XBRL Instance Document and Taxonomy Extension documents are also filed as exhibits[112] Signatures The report is signed by Joseph C. Sardano, CEO, and Javier Rampolla, CFO, on behalf of Sensus Healthcare, Inc. on August 13, 2021 - The report was signed by Joseph C. Sardano, CEO, and Javier Rampolla, CFO, on August 13, 2021[116]